The Federal Energy Regulatory Commission today accepted a
plan proposed by the PJM Interconnection, L.L.C. (PJM) that
will reduce transmission costs on PJM’s multi-state system,
more equitably distribute costs to those customers that benefit
from the reductions, while ensuring reliability of electric
service.

PJM is developing a protocol under which it does
not need to initiate out-of-merit dispatch generation as frequently
as it now does. This program, however, can only operate
in zones in which there is sufficient quick-start generation
to ensure reliable service. PJM relies on synchronous condensers
to provide greater assurance that those quick-start resources
will produce energy in a timely manner. Therefore, the
Commission
accepted PJM's proposed tariff and Operating Agreement
revisions that allocate the costs of those synchronous
condensers to
the customers receiving the reliability benefits of the
quick-start generation.

During the summer of 2003, PJM
conducted a pilot program of this new protocol for seven specified
flowgates on the
Conectiv system, which operates in the Delmarva Peninsula.
The pilot program enabled PJM to avoid the necessity for
redispatch, resulting in a calculated savings of more than
$2 million
in real time. The expansion of this program has the potential
to: (1) reduce redispatch costs in chronically congested
areas in the PJM region; (2) more accurately reflect the
local benefits
of avoided redispatch and enhanced reliability; (3) reduce
the potential for the exercise of local market power; (4)
reduce emissions; and (5) allow for more efficient use
of assets.

“ This proposal is the sort of cost-saving innovation
that is possible with organized markets and independent
transmission operators,” said Chairman Pat Wood, III. “While
cost savings will be realized across PJM’s system, it’s
a particularly important part of the solution to chronic
congestion costs in the Delmarva Peninsula,” the Chairman
added.

The Commission, noting that transmission congestion
can increase the cost of delivered energy to wholesale
customers, has
encouraged development of effective and efficient methods
to manage congestion
on transmission systems.

In May 2003, the Commission established
a fact-finding proceeding, facilitated by an administrative
law judge, to look into
concerns of transmission congestion on the Delmarva Peninsula
operated
by PJM (PA03-12-000). Limitations on generation and transmission
import capability have led to higher congestion costs on
the Delmarva Peninsula.

The proceeding developed a record to
evaluate the extent
and costs of transmission congestion and helped identify
potential solutions. In a further order, the Commission
directed the
presiding judge to provide proposed findings and recommendations,
including possible remedies for transmission congestion
on the Delmarva Peninsula. Today’s acceptance of PJM’s
proposal effectively fulfills one of the judge’s recommendations.